IR35 Guides - Are you inside or outside IR35?

The latest IR35 Forum minutes show that HMRC is seeking further feedback from industry stakeholders to help improve the way IR35 is currently administered.

The third IR35 Forum meeting, which took place on 14th September 2011, was attended by a wide range of experts, including representatives of REC, PCG, APSCo, and FCSA, as well as HMRC personnel and members of the leading accountancy bodies.

At the meeting, HMRC expressed their gratitude for the feedback they had received to date, but were concerned that not enough detailed suggestions or general information had been provided to help improve the administration of IR35.

Four key areas where detailed feedback is being sought

With this in mind, HMRC have provided four framework areas where it was seeking specific detailed comments from industry experts:

1. What will the role of the revamped IR35 helpline be, and how will it be operated?
2. What type of guidance should be provided, in terms of content, accessibility and groups the guidance is aimed at.
3. How IR35 status reviews will be opened, conducted, and closed.
4. Which types of business represent the highest risk, and why.

The IR35 Helpline

HMRC reconfirmed that callers to the IR35 helpline would be reassured that their calls would not be used to trigger a status enquiry. Callers could remain anonymous, unless they wanted a detailed IR35 opinion, in which case HMRC may have to approach the end user.

For this reason, the helpline might only realistically be used to provide general advice, as most contractors would be reluctant to divulge confidential information.

Interestingly, it is possible that the currently helpline is used mainly by accountants, not contractors at all, so it may be an idea to establish who actually uses the service currently.

IR35 Guidance

The current IR35 guidance, which has been available on the HMRC site for over a decade, is currently being looked at. Operators of the IR35 helpline have also recorded the ten most frequently asked IR35 questions.

HMRC are also seeking further feedback on the accessibility and content of the current guidance, so that it can be improved in the future.

Status Reviews

Industry experts have expressed concern over the way HMRC starts, conducts, and ends status reviews - suggesting a lack of consistency in HMRC's approach, and therefore a lack of certainty for individuals under investigation.

There was an acknowledgment that, in recent months, there had been a marked improvement in the closing of outstanding cases by HMRC

The move by HMRC to concentrate IR35 reviews in specialist teams whose main purpose will be to work IR35 cases may help HMRC improve the way cases are administered.

Risk Assessment

The Forum discussed the way HMRC assesses IR35 risk when identifying status review prospects.

One suggestion was to profile based on whether or not an individual was in business on his own account or not, rather than the nature of each contract. However, the legislation itself applies on a contract by contract basis, making this approach difficult.

The service company question on the employer annual return (P35) is used as one of many risk profiling factors. Amusingly, if contractors leave this question blank, this in itself is another indicator used in HMRC's risk profiling!

HMRC will try to ensure it strives to only to seek high risk cases for review, and to close enquiries as soon as possible if it has been accepted that IR35 does not apply.

HMRC have agreed to provide more clear information to individuals when they make IR35 status decisions, or if 'borderline' decisions are made.

Further Points of Interest

All Forum attendees have been tasked with providing HMRC with more specific information, including feedback on the current IR35 helpline, how the current guidance can be improved, and if any other external stakeholders should be invited to contribute.

Forum attendees will also be asked to consider 12 scenarios, provided by HMRC, and how IR35 would apply in each case.

The next meeting will take place in London on 9th November 2011.

You can download a PDF copy of the meetings from the HMRC site here.